By Thomas Harban

The respective parties to a professional indemnity (PI) claim (the plaintiff’s attorney, on the one hand, and the defendant (insured attorney), on the other) are opponents in the same manner as the opposing parties engaged in any other litigation. An in-depth examination of some of the claims notified to the Attorneys Insurance Indemnity Fund NPC (the AIIF) has revealed that this is not always the case. We have identified cases where the litigation is, unfortunately, brought by agreement between the supposed opponents. Furthermore, the litigation is not brought to pursue the interests of the plaintiff. In some instances, it is doubtful whether the plaintiff (as stated on the documents) is even aware of the litigation being pursued in his or her name.

The aim of the AIIF, in providing PI insurance to practitioners, is to provide such insurance in a sustainable manner and with due regard to the interests of the public by –

‘(a) protecting the integrity, esteem, status and assets of the insured and the legal profession;

(b) protecting the public against indemnifiable and provable losses arising out of legal services provided by the insured attorney.’

What is stated above is set out in the preamble to the AIIF PI policy. It will be noted that the AIIF seeks, in a sustainable manner, to protect the interests of the profession and the public. The AIIF will, subject to the policy conditions, provide indemnity to insured attorneys for legitimate PI claims brought against them. Any agreement aimed at constructing PI claims threatens the sustainability of the AIIF.

In recent months, the assessment of claims has brought a number of undesirable practices to our attention.  Where an insured attorney becomes aware of circumstances that may give rise to a PI claim, the client must be informed thereof and advised to consult with another attorney. It is not for the insured to instruct another attorney to pursue the claim against himself or herself, purportedly acting for the client. In these circumstances the insured attorney effectively elects an attorney who will litigate for him or her on behalf of the client, who has supposedly suffered a loss as a result of the breach of mandate/duty, and the aim is to obtain payment from the AIIF.

There have also been a number of instances where the plaintiff’s claim is only pursued if/while the AIIF is providing indemnity to the insured. In some instances, either the AIIF will, without a legal basis, be cited as a defendant or the particulars are framed in a way that attributes liability to compensate to the AIIF. When questioned on the reasons for this, the response from the attorneys concerned has been that either –

• they saw this as a way to force the AIIF’s involvement in the matter; or
• this was done in order to ensure that the AIIF ‘would pay the claim’.

The following example illustrates this point:

Such claims are essentially constructed with the intention of pursuing a payment by the AIIF. This conduct is taken seriously and will, in appropriate circumstances be reported to the provincial law society and we will also pursue actions to recover any funds expended in such matters. Where collusion between the insured and the plaintiff’s attorney is suspected, a full investigation will be undertaken. Fraudulent and/or dishonest applications for indemnity will be rejected.

The AIIF receives notification of an average of 600 PI claims per year.  In order to assess the claims, the AIIF requires the assistance of the insured attorneys. The duty to provide assistance arises from the AIIF policy conditions. In many instances where the underlying circumstances of a PI claim are questioned, the insured attorney does not cooperate with the AIIF as required in the policy.

The AIIF policy

The duties of an insured, as listed in the AIIF policy (the policy), includes:

• Giving the AIIF and ‘its appointed agents all information, documents, assistance and cooperation that may be reasonably required, at the insured’s own expense.’

In litigious matters, the AIIF may require that the insured attorney serve and file a notice of intention to defend while the matter is being assessed. The required information, documentation and assistance will enable the AIIF team to assess the claim. The most common instances where this duty is breached by insureds is where, for example, the AIIF team requires a copy of the attorneys file of papers but this is either provided at a very late stage in the proceedings or not provided at all. The AIIF’s position is then compromised in that there is insufficient time to properly investigate a claim. There have been instances where a trial date had been set and a postponement had to be applied for as a result of the insured not having furnished the AIIF with the required information and documentation. It must be emphasised that, under no circumstances whatsoever, will the AIIF accept liability or agree to settle a claim without having had the opportunity to properly investigate all aspects of a matter.

• Giving immediate notice to the AIIF of any circumstance, act, error or omission that may give rise to a claim. The AIIF must be notified in writing as soon as practicable of a claim, but no later than one week after the insured receives a written demand, summons, counterclaim or application.

In some instances, insured attorneys give late notification of the claim. The result is that the position of the AIIF as insurer may also be compromised in such circumstances. There have been many instances where the AIIF is only notified of a claim after a notice of Bar has been issued, a trial date is looming or even where judgment has already been taken against the insured. In some instances, the insured attorneys do not inform the AIIF that a notice of Bar has been issued. The AIIF reserves the right not to indemnify the insured for costs and ancillary charges incurred prior to or as a result of such late notification. Those firms, which have purchased top-up insurance in the commercial market, must have regard to the wording of their individual policies and note the time within which the top-up insurers are to be notified of an actual or potential claim. Some top-up insurers may reject a claim based on the late notification. In cases where the AIIF will not respond to the claim and the top-up insurer is then required to deal with the claim ‘from the ground up’, the top-up insurer will enquire why the AIIF policy has not responded and the insured will need to therefore, disclose the reasons. This then also puts the indemnification by the top-up insurer in jeopardy.

• The insured agrees not to admit or deny liability, settle a claim or incur any costs or expenses without the prior written consent of the AIIF.

In violation of this obligation, some insured attorneys embark on the interactions with the plaintiff’s attorney without the prior written consent of the AIIF. Unfortunately, some insureds even go the extent of admitting liability in respect of a claim on the mistaken impression that the AIIF will simply pay the amount sought.  Similarly, an insured cannot, without the AIIF’s prior consent, dispute a claim and litigate in respect thereof. All costs (including counsel’s fees and correspondent’s fees) incurred in such instances will be for the insureds own account.

• ‘The insured agrees to give the [AIIF] and any of its appointed agents all information, documents, assistance and cooperation … at the insured’s own expense.’

Any insured who refuses to provide cooperation to the AIIF or its agents (including the panel attorney) runs the risk of being refused indemnity. In assessing the claim and in pursuing the insured’s defence, it is important that the AIIF team (and the panel attorneys appointed by the AIIF), are granted access to the insured and any member of staff who has dealt with the matter in question. Some insured attorneys do not make either themselves and/or their staff available for the required consultations. This places the AIIF in a compromised position.

Practitioners must be aware that in failing and/or refusing to comply with their duties in terms of the AIIF policy, they place themselves at risk in that, where the AIIF refuses to grant indemnity, the practitioner may then be in position where the PI claim is faced without the benefit of an insurer. In the case of the AIIF, this means that the practitioner would not have the benefit of an attorney conducting the defence (at the insurer’s cost) and the AIIF limit of indemnity will also not be available to pay any damages (in the event that the practitioner is found to be liable to compensate the plaintiff).

Thomas Harban BA LLB (Wits) is the General Manager of the Attorneys Insurance Indemnity Fund NPC in Centurion.

This article was first published in De Rebus in 2017 (August) DR 14.